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

Video Indiana Controversy Points to Divergent Notions of Religious Freedom

Gay-marriage opponents are looking for ways to maintain their beliefs in face of changing culture, one writer says More

UNICEF Denies North Korean Measles Outbreak

Agency dismisses Russian media report after government, WHO assurances More

Turkey Seen Taking Harder Stance Against Militant Kurds

Stance comes as President Recep Tayyip Erdogan is being seen as moving closer to generals 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.
Indiana Controversy Highlights Divergent Meanings of Religious Freedomi
X
Jerome Socolovsky
April 01, 2015 1:41 AM
Indiana’s state government has triggered a nationwide controversy by approving a law that critics say is aimed at allowing discrimination against gays and lesbians. The controversy stems from divergent notions of religious freedom in America. VOA's Jerome Socolovsky reports.
Video

Video Indiana Controversy Highlights Divergent Meanings of Religious Freedom

Indiana’s state government has triggered a nationwide controversy by approving a law that critics say is aimed at allowing discrimination against gays and lesbians. The controversy stems from divergent notions of religious freedom in America. VOA's Jerome Socolovsky reports.
Video

Video Nigerians Welcome Buhari's Return to Power

Crowds of jubilant Nigerians nationwide have celebrated the return to power of former military ruler Muhammadu Buhari. The retired army general won this year's presidential election with more than 2 million votes more than incumbent President Goodluck Jonathan. Buhari's supporters hope he can strengthen the country's economy and security once he takes office in late May. Zlatica Hoke has this story.
Video

Video Report: State of Black America a 'Tale of Two Nations'

The National Urban League has described this year's "State of Black America" report as a "tale of two nations." The group's annual report, released earlier this month (March), found that under an equality index African Americans had only 72% parity compared to whites in areas such as education, economics, health, social justice and civic engagement. It’s a gap that educators and students at Brooklyn’s Medgar Evers College are looking to close. VOA's Daniela Schrier reports from the school.
Video

Video Film Tells Story of Musicians in Mali Threatened by Jihadists

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video Gamma Ray Observatory to Open Soon in Mexico

American and Mexican scientists have completed construction of the world's largest gamma ray observatory, situated high in central Mexico’s Sierra Negra Mountain. The observatory's huge array of water-based detectors will soon start discovering secrets about black holes and supernovas. VOA’s George Putic reports.
Video

Video Ebola Vaccine Trials Underway in West Africa

Ebola has claimed the lives of more than 10,000 people in West Africa. Since last summer, researchers have rushed to get anti-Ebola vaccines into clinical trials. While it's too early to say that any of the potential vaccines work, some scientists say they are seeing strong results from some of the studies. VOA's Carol Pearson reports.
Video

Video Philippines Wants Tourists Spending Money at New Casinos

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.
Video

Video Civilian Casualties Push Men to Join Rebels in Ukraine

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.
Video

Video Islamic State Prisoners Talk of Curiosity, God, Regret

Islamic State fighter, a prisoner of Kurdish YPG forces, asked his family asking for forgiveness: "I destroyed myself and I destroyed them along with me." The Syrian youth was one of two detainees who spoke to VOA’s Kurdish Service about the path they chose; their names have been changed and identifying details obscured. VOA's Zana Omer reports.
Video

Video Germanwings Findings Raise Issue of Psychological Testing for Pilots

More is being discovered about the co-pilot in the crash of Germanwings Flight 9525 in the French Alps. Investigators say he was hiding a medical condition, raising questions about the mental qualifications of pilots. VOA's Carolyn Presutti reports.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.

VOA Blogs

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More