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.

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 In US, Columbus Day Still Generates Controversy

Holiday marks date Columbus discovered Americas, but some are offended by legacy because he enslaved many natives he encountered More

Video Through Sports, Austria Tries to Give Migrants Traction

With 85,000 people expected to claim asylum in Austria this year, its government has made integration through joint physical activities a key objective More

Video Kickboxing Champion Shares Sport With Young Migrants

Pouring into Europe by hundreds of thousands, some migrants, especially youngsters, are finding sports a way to integrate into new host countries More

This forum has been closed.
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.
Amnesty Accuses Saudi Coalition of ‘War Crimes’ in Yemeni
Henry Ridgwell
October 12, 2015 4:03 PM
The human rights group Amnesty International has accused the Saudi-led coalition of war crimes in airstrikes against Houthi rebels in Yemen. Henry Ridgwell reports the group says hundreds of civilians have been killed in strikes on residential areas.

Video Amnesty Accuses Saudi Coalition of ‘War Crimes’ in Yemen

The human rights group Amnesty International has accused the Saudi-led coalition of war crimes in airstrikes against Houthi rebels in Yemen. Henry Ridgwell reports the group says hundreds of civilians have been killed in strikes on residential areas.

Video No Resolution in Sight to US House Speaker Drama

Uncertainty grips the U.S. Congress, where no consensus replacement has emerged to succeed Republican House Speaker John Boehner after his surprise resignation announcement. Half of Congress is effectively leaderless weeks before America risks defaulting on its national debt and enduring another partial government shutdown.

Video New Art Exhibit Focuses on Hope

Out of struggle and despair often comes hope. That idea is behind a new art exhibit at the American Visionary Art Museum in Baltimore, Maryland. "The Big Hope Show" features 25 artists, some of whom overcame trauma and loss. VOA’s Deborah Block reports.

Video Columbus Day Still Generates Controversy as US Holiday

The second Monday of October is Columbus Day in the United States, honoring explorer Christopher Columbus and his discovery of the Americas. The achievement is a source of pride for many, but for some the holiday is marked by controversy. Adrianna Zhang has more.

Video Anger Simmers as Turks Begin to Bury Blast Victims

The Turkish army carried out new air strikes on Kurdistan Workers Party (PKK) targets on Sunday, a day after the banned group announced a unilateral cease fire. The air raids apparently are in retaliation for the Saturday bombing in Turkey's capital Ankara that killed at least 95 people and wounded more than 200 others. But as Zlatica Hoke reports, there are suspicions that Islamic State is involved.

Video Bombings a Sign of Turkey’s Deep Troubles

Turkey has begun a three-day period of mourning following Saturday’s bomb attacks in the capital, Ankara, that killed nearly 100 people. With contentious parliamentary elections three weeks away, the attacks highlight the challenges Turkey is facing as it struggles with ethnic friction, an ongoing migrant crisis, and growing tensions with Russia. VOA Europe correspondent Luis Ramirez reports.

Video Afghanistan’s Progress Aided by US Academic Center

Recent combat in Afghanistan has shifted world attention back to the central Asian nation’s continuing civil war and economic challenges. But, while there are many vexing problems facing Afghanistan’s government and people, a group of academics in Omaha, Nebraska has kept a strong faith in the nation’s future through programs to improve education. VOA’s Greg Flakus has more from Omaha, Nebraska.

Video House Republicans in Chaos as Speaker Favorite Withdraws

The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video German, US Officials Investigate Volkswagen

German officials have taken steps to restore some of the reputation their car industry has lost after a recent Volkswagen diesel emissions scandal. Authorities have searched Volkswagen headquarters and other locations in an effort to identify the culprits in the creation of software that helps cheat on emission tests. Meanwhile, a group of lawmakers in Washington held a hearing to get to the bottom of the cheating strategy that was first discovered in the United States. Zlatica Hoke reports.

Video Why Are Gun Laws So Hard for Congress to Tackle?

Since taking office, President Barack Obama has spoken out or issued statements about 15 mass shootings. The most recent shooting, in which 10 people were killed at a community college, sparked outrage over the nation's gun laws. But changing those laws isn't as easy as many think. VOA's Carolyn Presutti reports.

Video In 'He Named Me Malala,' Guggenheim Finds Normal in Extraordinary

Davis Guggenheim’s documentary "He Named Me Malala" offers a probing look into the life of 18-year-old Malala Yousafsai, the Pakistani teenager who, in 2012, was shot in the head by the Taliban for standing up for her right to education in her hometown in Pakistan's Swat Valley. Guggenheim shows how, since then, Malala has become a symbol not as a victim of brutal violence, but as an advocate for girls’ education throughout the world. VOA’s Penelope Poulou has more.

Video Paintable Solar Cells May Someday Replace Silicon-Based Panels

Solar panels today are still factory-manufactured, with the use of some highly toxic substances such as cadmium chloride. But a researcher at St. Mary’s College, Maryland, says we are close to being able to create solar panels by painting them on a suitable surface, using nontoxic solutions. VOA’s George Putic reports.

VOA Blogs