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

    Top US General: Turkish Media Report ‘Absurd'

    General Dunford rejects ‘irresponsible' claims of coup involvement by former four-star Army General Campbell, who led NATO forces in Afghanistan before retiring earlier this year

    Video Saving Ethiopian Children Thought to Be Cursed

    'Omo Child' looks at efforts of one African man to stop killings of ‘mingi’ children

    Protests Over Western Troops Threaten Libyan 'Unity' Government

    Fears mount that Islamist foes of ‘unity' government plan to declare a revolutionaries' council in Tripoli

    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.
    London’s Financial Crown at Risk as Rivals Eye Brexit Opportunitiesi
    X
    VOA News
    July 25, 2016 5:09 PM
    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video Recycling Lifeline for Lebanon’s Last Glassblowers

    In a small Lebanese coastal town, one family is preserving a craft that stretches back millennia. The art of glass blowing was developed by Phoenicians in the region, and the Khalifehs say they are the only ones keeping the skill alive in Lebanon. But despite teaming up with an eco-entrepreneur and receiving an unexpected boost from the country’s recent trash crisis the future remains uncertain. John Owens reports from Sarafand.
    Video

    Video Migrants Continue to Risk Lives Crossing US Border from Mexico

    In his speech Thursday before the Republican National Convention, the party’s presidential candidate, Donald Trump, reiterated his proposal to build a wall along the U.S.-Mexico border if elected. Polls show a large percentage of Americans support better control of the nation's southwestern border, but as VOA’s Greg Flakus reports from the border town of Nogales in the Mexican state of Sonora, the situation faced by people trying to cross the border is already daunting.
    Video

    Video In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movement

    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video Calm the Waters: US Doubles Down Diplomatic Efforts in ASEAN Meetings

    The United States is redoubling diplomatic efforts and looking to upcoming regional meetings to calm the waters after an international tribunal invalidated the legal basis of Beijing's extensive claims in the South China Sea. VOA State Department correspondent Nike Ching has the story.
    Video

    Video Four Brother Goats Arrive in Brooklyn on a Mission

    While it's unusual to see farm animals in cities, it's become familiar for residents of Brooklyn, New York, to see a little herd of goats. Unlike gas-powered mowing equipment, goats remove invasive weeds quietly and without adding more pollution to the air. As Faiza Elmasry tells us, this is a pilot program and if it proves to be successful, the goat gardener program will be extended to other areas of New York. Faith Lapidus narrates.
    Video

    Video Scientists in Poland Race to Save Honeybees

    Honeybees are in danger worldwide. Causes of what's known as colony collapse disorder range from pesticides and loss of habitat to infections. But scientists in Poland say they are on track to finding a cure for one of the diseases. VOA’s George Putic reports.
    Video

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.
    Video

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.
    Video

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.
    Video

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.

    Special Report

    Adrift The Invisible African Diaspora